Special Market Update

The end of July is right around the corner, and that means we find ourselves in a full-blown weather market. It is no secret the western corn belt had a dry start, the driest in decades, and that has added a lot of volatility to our markets. On the other hand, the eastern belt has seen significant rains that are starting to become an issue for soybeans! Our markets continue to get more complex as we approach new crop and there are a few key things to focus on as we head into August.

The corn market, in very simple terms, is focused on how much supply new crop brings us. The USDA estimates 20/21 carryout to be 1.082 billion bushels, the lowest since 2012. The low carry into the new crop year puts extra pressure on new crop balance sheets. The market was already surprised by the planted acreage number of 92.7M acres and was expecting a number closer to 94M acres. Having said that, the western corn belt has seen one of the driest starts to a crop year in decades. We are entering the pollination phase of the growth cycle where limited heat stress is most important. The ideal daily high is around 85 degrees, and recently we have seen highs in the 90-100-degree range. Rains are forecasted for the key dry areas, but heat stress looks to remain in the next 10 to 14 days. All of this uncertainty makes yield very hard to predict, and that creates volatility in the markets. Since June 1^st the average daily trading range has been 23.5 cents. It wasn’t too long ago that a 23 cent move in one day only happened a few times a year! Now its just another day of the week! Keep an eye on western corn belt weather, more specifically rainfall in key dry areas and heat stress during pollination.

The soybean market is facing an opposite issue as the corn market in that some areas have received too much rainfall. The eastern belt saw extreme moisture towards the end of June and the beginning of July. The rainfall mixed in with lower than expected planted acres (87.6M) has been the story behind soybeans. If you thought corn was volatile, hold onto your hat. The average daily range in new crop soybeans since June 1^st has been 40 cents! The small acres make our balance sheets look tight for another year, with carryout estimated to be 155 million bushels. Any yield change, no matter how small, goes a very long way when the balance sheet is this tight. With so many bullish headlines its hard to see the other side of the market, but not every factor is pointing the market higher. The situation in China is a lot different currently vs this time last year. The China Ministry of Agriculture reports that hog prices are half of what they were this time last year. They also reported that at the end of Q2 they had the largest swine inventory in the past 5 years. China has been hard to working rebuilding their swine population after African Swine Fever killed over half the countries inventory. This in flux of supply paired with prices on the rise trigger the selloff and they now find themselves oversupplied. Oversupply leads to lack of feed demand, which soybean meal is a big piece of. It will be very important to monitor the Chinese crush margin and new crop purchases.  USDA currently estimates exports to be 2.075 billion bushels. Should we miss that number to the downside that adds bushels back to a tight balance sheet.

We have a few key dates to keep in mind as we approach new crop. Every Monday at 4pm eastern the USDA will release the crop progress and conditions report. Last nights report showed corn rated 64% good to excellent, a 1% decrease from last week. Soybeans showed a 58% good to excellent rating, a 2% decrease from last week. The next WASDE report will be August 12, and this will be the first potential for the USDA to revise new crop yields. Make sure to stay in touch with your local merchant to stay informed on this extremely volatile market. You can also follow us on twitter @andersonsgrain!